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The IBR is a publication of the Indiana Business Research Center at IU's Kelley School of Business

Louisville forecast 2018

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Executive Vice Chancellor for Academic Affairs and Sanders Chair in Business, Indiana University Southeast, New Albany

There is general optimism regarding the nation’s economy as we move toward 2018.

The Dow Jones Industrial Average is at an all-time high. Consumer confidence exceeds the highest level just prior to the Great Recession. New claims for unemployment are at the lowest levels since the 1970s, and the last quarter of GDP growth is the highest since 2014. Industrial production continues to trend upward, as well as durable goods orders, which is a key manufacturing-sensitive indicator.

Despite these favorable national indicators, year-over-year growth in the Louisville metro is among the lowest in several years, and the most recent available data for Southern Indiana show the smallest increase in payrolls since 2012. National trends point to stronger growth locally, but there are some caveats to what should be an otherwise favorable regional outlook.

Louisville payrolls

The most recent quarter (July through September) registered a year-over-year change in payrolls of almost 10,000, representing the lowest change of payrolls since early 2013 (see Figure 1). The September year-to-date change in payrolls is now at 6,000—the lowest since 2011.

Figure 1: Louisville metro nonfarm payroll jobs, January 2007 to September 2017

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Source: Factset

A closer look at sector growth provides additional insights (see Figure 2). Manufacturing sector payroll growth is recently negative, despite a key national manufacturing indicator that is at its highest since 2005.1 Last year, retail growth was in positive territory, but is now shedding jobs with year-over-year growth at negative levels. Professional and business services was showing the highest percentage change of all sectors last year, but has now slowed to a level that just exceeds overall job growth. Education and health services consistently exceeded overall job growth last year, but has also slowed to a level that is the same as total payroll growth. Financial activities and information are also slowing.

Figure 2: Year-over-year percent change in payroll jobs for selected Louisville metro sectors, October 2015 to September 2017

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Source: Factset

Last year, this economist expected national manufacturing growth to accelerate, and this was expected to show up locally through additional jobs on manufacturing payrolls.2 Nationally, manufacturing is on the increase, evident through indicators such as the Institute for Supply Management (ISM) index, but the growth in payroll jobs has yet to be observed locally. The combination of declining manufacturing and decelerating growth in professional and business services contributes to the explanation of the less-than-expected Louisville growth in jobs.

Southern Indiana

The situation is no different in Southern Indiana. The most recent available payroll growth at the county level shows the smallest change in payrolls since 2012.3 The first quarter of 2017 showed jobs grew by only 799, considerably less than the quarterly average of 2,785 during 2016 (see Figure 3). The source of the impressive growth observed for Southern Indiana in the past several years has been Clark County, which has accounted for a significant share of overall payroll gains. Likewise, it is now the source of the payrolls slowdown. During the last quarter of 2016, Clark County payrolls grew by approximately 400, considerably under the totals that averaged almost 2,000 in the prior three quarters. During the first quarter of 2017, Clark County lost 165 payrolls.

Figure 3: Change in Southern Indiana payroll jobs over time

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Source: STATS Indiana, using Quarterly Census of Employment and Wages data from the U.S. Bureau of Labor Statistics

Clark County transportation and warehousing lost 490 jobs, explaining the overall job loss for Clark County and the slowdown for Southern Indiana. Manufacturing growth had been a positive contributor to overall Southern Indiana growth, but the latest quarter shows a small decline of 23 jobs, marking the first decline in Southern Indiana manufacturing since 2010.

Possible explanation of the slowdown

The Louisville-Southern Indiana Outlook has previously discussed the labor force growth challenges of Southern Indiana.4 The region’s labor force growth may not be sufficient to support the anticipated job growth associated with assets such as the River Ridge Commerce Center. We may now be seeing that impact on overall job growth. As Figure 4 indicates, labor force growth in Southern Indiana has declined from recent years. With record low unemployment rates, the region is seeing a smaller labor pool available to fill vacant positions.

Figure 4: Over-the-year change in labor force and employment in Southern Indiana, January 2008 to August 2017

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Source: Factset

As evidence, the number of unemployed totaled slightly more than 5,000 across the five Southern Indiana Louisville metro counties. Burning Glass Labor Insight data indicate that the number of job postings for the past 90 days (October 2017) across the five counties totaled almost 5,000, with the largest occupation openings in heavy and tractor trailer truck drivers. Burning Glass Labor Insight data also show 610 openings for truck drivers across Southern Indiana. As we recall, transportation and warehousing was also the largest contributor of overall job losses, both in Clark County and Southern Indiana, during the first quarter of 2017.

Summary

Last year, our forecast for the region was quite optimistic. Stronger national growth was supposed to contribute to stronger regional growth in manufacturing and consumer-related sectors, such as transportation and warehousing. For the most part, national growth is occurring as expected. However, the traditional linkage from the national to local economy has perhaps been strained. Stronger manufacturing growth at the national level has not produced growth at the local level, and stronger national consumer confidence and retail sales have not contributed to key regional sectors, such as transportation and warehousing.

The real question is whether the region has now hit a roadblock to potential job growth due to the lack of robust labor force growth. That remains to be seen, but the region is now facing significant headwinds to overall job growth. Creative strategies to attract and retain residents will be critical. While the overall economic outlook is favorable, the local impact of this positive economic outlook will rest on the region’s ability to grow its labor force.

Notes

  1. The latest Institute for Supply Management index is at 60.8 at the time of this writing, the highest reading since 2005.
  2. Uric Dufrene, “Louisville Forecast 2017,” Indiana Business Review, Winter 2016, www.ibrc.indiana.edu/ibr/2016/outlook/louisville.html
  3. See the Quarterly Census of Employment and Wages (QCEW) data at www.stats.indiana.edu/cew/.
  4. Jerod Clapp, “Southern Indiana Jobs Keep Growing, Workforce Lagging,” News and Tribune, May 17, 2016, www.newsandtribune.com/news/southern-indiana-jobs-keep-growing-workforce-lagging/article_de20bfde-1c59-11e6-ba26-af7edb2a2b98.html.